Deal for noodle factory raises questions

Updated 11:41 pm, Saturday, June 16, 2012

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Deal for noodle factory raises questions

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Bexar County commissioners are considering an unusual deal that would give millions of dollars worth of incentives to a food manufacturer that plans to build a factory and hire hundreds of workers, but at the minimum wage of $7.25 an hour.

Last week, Bexar County authorized economic development officials to negotiate with Maruchan Inc. of Japan, which wants to open a Ramen noodle factory, warehouse and distribution center in the southwest part of the county.

Maruchan said it would employ 35 to 55 people but would turn to a contractor to hire as many as 600 factory workers. Those workers would be offered health-care benefits, including dental and vision plans, a Maruchan representative said.

County Judge Nelson Wolff acknowledged the jobs don't meet the county's guidelines on wages, but he said he supported the project and the $5.8 million in incentives because it would have a “lasting impact.”

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“I decided to stand by it,” he added, based on Maruchan's proposed investment of $325 million and the taxes that would be paid to local entities, including the Southwest Independent School District.

The incentive packages are provoking some hand-wringing, even as the city Thursday signed off on the deal by agreeing not to annex the plant for five years.

San Antonio has tried to change its reputation as a low-wage city, but the median wage in the area, $14.40 an hour, remains $2.50 lower than in Houston and $2.80 lower than in Austin and Dallas, according to the U.S. Bureau of Labor Statistics. For some of the lowest-paid workers — dishwashers and ushers — in the San Antonio area, the median wage is $8.52.

Some Bexar County commissioners wondered aloud whether bringing many low-wage jobs to the area would be a step backward.

“Are we giving $5 million worth of incentives over a 10-year period to a company that's not paying a living wage? That's the dilemma,” Bexar County Precinct 2 Commissioner Paul Elizondo said.

Bexar is offering a grant — not a tax abatement — employing a loophole that allows Bexar to offer incentives for low-wage jobs. County guidelines require recipients of tax abatements to pay a living wage now pegged at $10.75 an hour.

But Maruchan's investment and the hundreds of jobs it would bring are overcoming any qualms about the pay.

“A job is a job. We need to get as many of them as we can,” Elizondo said.

Keith Phillips, an economist and senior economic policy adviser at the San Antonio branch of the Federal Reserve Bank of Dallas, said that if Bexar County attracts more low-skilled jobs, there will be pressure to raise wages paid for those jobs.

But he said more low-skilled jobs “are not the problem. It's too many low-skilled workers.”

A worker who is paid the minimum wage might qualify for food stamps if he or she meets other criteria, said Veronica Laurel, spokeswoman for the San Antonio Food Bank, which runs a food-stamp program.

Not ‘bad' jobs

Precinct 3 Commissioner Kevin Wolff, the court's lone Republican, predicted the project would go through once more information is provided and commitments made on pay and hiring.

“Just because some of these are minimum-wage jobs doesn't make them bad jobs,” Wolff said.

And once in place, the pact will be enforceable, Wolff said.

“We learned a long time ago, through the mistakes of the city, to strengthen what we call claw-back provisions within any of the economic development incentives. They don't get the benefit of the incentive until they hit the thresholds they said they were going to hit and that we agreed to,” he said.

“I'm not a big fan of tax incentives,” he added, “but you're talking about a sizeable number of jobs. And facing reality, you have a large number of unskilled and semi-skilled workers in San Antonio.”

Don Hicks, professor of political economy at the University of Texas at Dallas, said jobs — even low-wage jobs — in a job-starved part of the county would be a good thing.

The plant will be closer to a population of potential workers who might have limited literacy skills and work experience and often don't have transportation.

“If you bring a job to them, some of those barriers go down,” Hicks said. “They get work experience, and they are off and running. These jobs are the first rung on the ladder. They have some experience that they can take into the labor market.”

The city's agreement with Maruchan calls for it to invest $318 million, hire more than 500 workers, provide benefits “similar to” benefits it provides to its employees in California. The company also must make “reasonable efforts” to hire at least 40 percent of its initial workforce locally in areas with a poverty rate of 20 percent of greater, based on U.S. Census data.

Also, Maruchan must use the services of Workforce Solutions Alamo and hold at least four advertised job fairs.

If San Antonio annexes the project site after the five-year period, the city promised to reimburse the company's property taxes of $2.4 million during a five-year period.

On Tuesday, Commissioners Court unanimously authorized county Economic Development Executive Director David Marquez to negotiate incentives including the $5.8 million grant, only the fifth considered in the past year. The negotiated agreement would require another round of approval from commissioners, but it's likely to be authorized as outlined — even with lingering concerns about proposed wages and benefits, commissioners said.

While Marquez said a living wage is “critical” for the county, “We think this one creates enough (jobs), plus with the capital investment, to be a worthy project.”

Initially, Maruchan said it would bring more direct jobs to the project, but that number was reduced — for now.

Marquez said his task is to make sure that sufficient numbers of the direct jobs are at the living wage or better.

“I'm confident about it. We're going to work out something that the public feels is fair and meets all of our expectations about the jobs,” he said.

Grants are unusual

Maruchan hasn't yet purchased its proposed site on Fischer Road, a move not atypical for a Japanese company.

“The way they do business is different,” Marquez said. “They often want to have some sense of what the incentives will be in a more firm way than most American companies.”

If finally approved by the county, the Maruchan plant would be the 16th business in the past year to be awarded county tax abatements or economic development grants. One of them — pet supplier Petco — got both.

Grants are rare — only four in the past year ranging from $200,000 for Petco to $2.5 million pending for City-Base West. Grants of $500,000 went to the San Antonio Economic Development Foundation, and $100,000 to West-East Bilateral Economic Regional Collaboration Council, which focuses on Asian trade and investment.

The 10 businesses that received county tax abatements include developments at the Pearl Brewery, City-Base West, and the mixed-use housing developments Mosaic on Broadway and 1800 Broadway.

Others abatements went to major corporations serving the Eagle Ford Shale play south of San Antonio, including oil field suppliers Baker Hughes Inc., Weatherford International and Schlumberger.

The 10-year abatements ranged from 40 percent for real estate taxes only, to 100 percent for real and personal property taxes for Nationwide Mutual Insurance Co. Collectively, the 11 businesses projected about $300 million in capital investments during the decade.

Maruchan's Hertel said the company looked at building its plant in Schertz or in Mexico. But now “we are focusing on Bexar County. All the parts seem to be coming together.”